Elon Musk: Recession ‘A Good Thing,’ Bankruptcies ‘Need to Happen’

Elon Musk arrives at the In America: An Anthology of Fashion themed Met Gala at the Metropolitan Museum of Art in New York City, New York, on May 2, 2022. (Andrew Kelly/Reuters)

Billionaire Elon Musk wrote on Twitter that a recession would be “a good thing,” adding that “some bankruptcies need to happen.”

The Tesla Motors and SpaceX CEO published a poll on his Twitter account, asking, “Who do you trust less? Real question.” He offered two answers: politicians and billionaires. More than 75 percent chose politicians.

In the May 26 thread, Musk engaged with other users on politics and tax policy. He rejected the unrealized capital gains tax proposal, while favoring the elimination of estate tax loopholes “since probability of kids being effective stewards of capital is lower.”

One individual asked Musk if he thinks the United States is heading toward a recession.

“Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen,” Musk replied, later adding that it will likely last between 12 and 18 months.

“Companies that are inherently negative cash flow (ie value destroyers) need to die, so that they stop consuming resources.”

Elon Musk's Twitter profile is seen on a smartphone placed on printed Twitter logos on April 28, 2022. (Dado Ruvic/Reuters)

He also remarked that the new COVID-induced stay-at-home trends have “tricked people into thinking that you don’t actually need to work hard.”

“Rude awakening inbound!”

Earlier this month, Musk told the All-In Summit in Miami Beach that the U.S. economy was “probably” in a recession that could last as long as 18 months.

“What tends to happen is, if you have a boom that goes on for too long, you get misallocation of capital—it starts raining money on fools, basically,” he said.

Musk also commented on soaring inflation, blaming the government for creating enormous amounts of money in a two-year span.

“The honest reason for inflation is that the government printed a zillion amount of more money than it had,” he said. “This is not like, you know, super complicated.”

In December, Musk was asked when he thought the next recession would happen. The world’s richest person—with a net worth of about $193 billion, according to Bloomberg—conceded that forecasting macroeconomics was difficult, but said, “My gut feel is maybe around spring or summer 2022, but not later than 2023.”

Is Recession Coming?

Many financial analysts anticipate that the U.S. economy will rebound in the second quarter after surprisingly contracting 1.5 percent in the first quarter.

The Conference Board projects that real GDP growth will be 2.1 percent in the April-to-June period. Dutch bank ING anticipates growth of at least 2 percent. The Federal Reserve Bank of Atlanta’s GDPNow model suggests a 1.9 percent expansion in this span.

Others believe that the odds of a recession happening later this year or in 2023 are high.

While Goldman Sachs and Morgan Stanley each have recession odds of 35 percent and 50 percent, respectively, Deutsche Bank’s baseline scenario is “a major recession in late 2023 and early 2024.”

“If anything, we think the risks are skewed towards a much more significant recession, as inflation proves more persistent than is generally expected,” the bank wrote in a research note (pdf).

“The bottom line is that while inflation may fall somewhat from its 40-year high in March, multiple factors are set to keep it elevated well above target for some time. We would not be surprised to see core PCE inflation sustained in the 4-5% range well into 2023, before receding after the recession hits.”

Doug Duncan, the chief economist at Fannie Mae, projected that the economy would slide into a modest recession in the second half of 2023.

“As such, we’ve updated our 2023 forecast to include a modest recession, but one that we do not expect to be similar in magnitude or duration to the recession of 2008,” Duncan said in a statement.

Prominent individuals have also stated that recession worries are justified, whether because the Federal Reserve has fallen behind the curve or inflation is out of control.

Former Federal Reserve Vice Chair Alan Blinder recently told CNBC that “a recession is pretty likely,” placing the probability at between 50 and 60 percent. If the United States does slip into a recession, he thinks it will be mild.

Carl Icahn, founder and chairman of Icahn Enterprises, told the business news network in March that the United States would face “a recession or even worse.”

Although he has softened his tone slightly, JPMorgan Chase CEO Jamie Dimon thinks a recession is “absolutely” possible.

Main Street and Corporate America are almost certain that a recession will take place in 2022 or 2023.

A recent CNBC + Acorns Invest In You survey found that 81 percent of U.S. adults think the economy is likely to endure a recession this year.

The latest Conference Board gauge of CEO sentiment discovered that 57 percent say the economy will sustain a “very short, mild recession.”

In the end, “it’s a legitimate worry that a recession could be a byproduct of the Fed’s quest to tame inflation,” says Preston Caldwell, an equity analyst at Morningstar.

“For now, a recession in the next two years is not in our base case economic forecast, though its probability is meaningfully above zero.”